Headlam Group plc (HEAD.L) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Headlam Group plc Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question received during the meeting itself. However, the company can review all questions submitted today and publish responses which is appropriate to do so. Before we begin, I would like to submit the following poll. I would now like to hand over to Chris Payne, CEO. Good afternoon, sir.

Good afternoon, and thank you for joining us. We're going to talk to Headlam's half year results for 2025. I'm Chris Payne, the Group Chief Executive, and I'm joined here by our CFO, Adam Phillips. So I'm going to cover an introduction, which is really an update on the current trading conditions. I'm going to give an update on the strategy and transformation plan, and then hand over to Adam to talk to the numbers for the first half, who will then hand back to me to get into a bit more detail around the transformation plan in particular. So firstly, just on sort of current trading, if you like, and the market conditions that we see. The market has been quite subdued for a number of years now. Certainly, prior to COVID, we've seen perhaps a 25% reduction in volume on the flooring market. I think we have seen some signs in recent months, certainly an improving trend in terms of like-for-like. Last year, obviously, it was quite a negative year. This year has opened negative, but the performance has been trending bit more flat. And then certainly, in June, July, we saw a flat performance, a bit bumpy where August is seeing a little bit of a negative again. So it is sort of bumping along at the moment, but we have seen that improving trend. I think that sort of belies a bit of detail. So when you peel back and look at the component parts of our business, and I'll come on to those when I talk about strategy in a moment. But the core business that's been in the mature part of Headlam for a number of years has seen a sort of continued weakness and seen that in decline. But where we've been deploying additional resources and putting down space, in particular, trade counters, we've seen that in growth, and we've seen good growth from both the trade counter business and larger customers, which has offset some of the weakness that we've seen in the more mature part of the business. So I'd say challenging market continues -- market situation remains, but perhaps with a little bit more trending back to 0. And we'll talk in the future slides about the outlook and perhaps a little bit more positive lead indicators, which point to perhaps a more positive future. With regard to the transformation plan, there were kind of three key elements of the transformation plan. Firstly is around the kind of customer effect and the sales plan. The second one is around the network and the shape of our operations. And the third element is around our business model and the sort of business operations itself. And I'll talk in depth when we get to the transformation plan detailed slides around our progress against each of those three elements. But in summary, certainly, we've seen more progress on the customer-facing element of the transformation plan. And I think that's the most mature element. And we created the Mercado business out of our 32 wholesale businesses this time last year. So that's been in place now for the best part of the year, and the customer response to that has been quite positive. So that's given us the encouragement to also consolidate six of the branded sales teams into a single branded sales team as well. So we've taken the next step in more recent months on the customer side. I think the other areas of the plan are less mature. I'll come on to those, as I said earlier, but we've appointed Alvarez & Marsal to help us, I suppose, accelerate some of those items that we identified and also look at perhaps expanding the scope of some of those improvement plans. And that's given us the encouragement to upgrade the benefit of the transformation plan to GBP 35 million, and we'll come on to that in some detail. I think the last thing I would just cover before I hand over to Adam is that we have decided also just to double down really on the U.K. and focus on the U.K. business. So taken the decision to exit our Continental European business in France and the Netherlands. And therefore, that's been classified as held for resale. But Adam will cover that in the numbers in a moment. So I'll just hand over to Adam, who's going to talk to you about the half year numbers now.

Thanks, Chris. I'll just start with an update on the flooring market. You'll have seen some of these indicators before. But on the left-hand side, we put some indicators of market performance year-to-date and then some of the lead indicators, which give a bit of a sense of how the market might perform going forward. So just on the left-hand side, perhaps if you look at the bottom left-hand chart, that's the Barclays data on consumer spending on the home improvements category. And after a quite significantly negative year in 2024 and as we enter '25, we did see some return to growth and a bit of optimism in that spend category of consumer spending in the spring sort of time, but you can see that's deteriorated again in more recent months. And I think that just highlights the fragility of the market conditions and the consumer confidence, which is in the chart above it, which is making it difficult to see a sort of momentum of recovery in that consumer spend on that category. And we see that -- I mean, this is home improvements in total, we see that correlate quite closely to what we see in the flooring market as well. However, on the right-hand side, the lead indicators do continue to be positive. So housing transactions, top right, that correlates -- typically will correlate quite closely as an indicator of demand for the flooring market. People move houses, they move in and they want to do kitchens, bathrooms, floors, et cetera. And you can see those have been in growth now for about 1.5 years. There's a blip there around the stamp duty change, but the trend is upwards for about 1.5 years. And then incomes are rising. So people are increasingly having the ability to do these big ticket projects on their home. So the ability and they have a reason because people are moving house more. But we're just not yet seeing that translate into spending on home improvements, which is the bottom left-hand chart you see there. But it does suggest there is some built-up pent-up deferral of demand as and when people have the confidence either to dip into their savings or to take on a bit of credit to do some work on their house. Moving then on to Headlam's results for the first half of the year. Income statement on this page, I'll just walk through quickly down the table. First point just to note on this is that this is our -- this is continuing results. So Chris mentioned that we have made the decision to sell our French and Dutch businesses. What that means is that they are -- for accounting purposes, they are effectively carved out of the P&L, and they are treated as a -- the net result is treated as one line at the bottom of the P&L, which I'll come on to in a minute. So the rest of this P&L you see here is the remaining is the U.K. continuing business. So if we start at the top, revenue. So revenue declined 3.8% on a same-day basis. We had 1 less day in the first half of this year. So we're down 4.7% on an absolute basis. We've got the same number of days year-on-year when it comes to the second half. Continued growth in Trade Counters and Larger Customers, as Chris mentioned, and that was offset by the decline in the core distribution channels. Gross margin slightly increased, and that's a mix of -- mix impact. So as we mix into larger customers, they have a lower gross margin percent, and that pulls the margin down a bit, but we had lower -- also offsetting that had lower clearance activity in the first half of this year compared to last year, which offset that holding margin flattish but slightly up for the first half. Operating costs increased by 2.4%, and that was all due to the final investments in the new trade counter sites. Putting those to one side, actually, our costs declined year-on-year in the first half of the year, and that's with the benefits of the transformation plan more than offsetting the cost inflation in the first half. Just moving down the table, so net finance costs lower year-on-year by GBP 0.5 million, and that reflects the benefit of lower average borrowings year-on-year this year compared to what we're borrowing in the first half of last year. And then that all culminates in the loss before tax there of GBP 19.9 million. I'll come on to that on the next slide where we've got a breakdown of the movements year-on-year. But just to finish off on this table, bottom of the table there or second row from the bottom, loss from discontinued operations, GBP 2.1 million loss. That's the loss after tax from our French and Dutch businesses, and that's the mix of a GBP 1.5 million loss before tax and a GBP 0.6 million tax charge relating to deferred tax assets. So just moving on to the bridge then of the result from the first half of 2024 to the first half of 2025. I'll just take each item from left to right. So revenue, the revenue decline contributed to a GBP 3.5 million reduction in profit. Trade Counters, GBP 2 million reduction in profit. So we've talked about this before, where in the rollout phase, Trade Counters are dilutive to profit. And that is because typically, it takes about 15 months or so for a new location to become breakeven. So it's loss-making in those first 15 to 18 months. And so Trade Counters as a business unit, its profit -- it's positive profit contribution, but it's been dilutive year-on-year. So it's made a smaller profit contribution as we've been investing in and opening up new trade counters. As we move into next year, and we've ceased the rollout program, now we've got around 80, and that's about the right size of the [ estate ], we think for now. You'll see that gray bar then flips to become a green bar as the Trade Counter business becomes profit accretive year-on-year. And essentially, as those sites mature, the revenue growth that they will generate will fall -- will be onto a relatively fixed cost base. So that revenue growth will drop through to profit at quite a strong rate. So that's Trade Counters investment. Cost inflation, GBP 2.3 million. That includes the 7% national minimum wage increase and also the increase in employees and national insurance contributions. And as I mentioned previously, that was more than offset by the early benefits of the transformation plan. And then finally, interest costs, as I mentioned, GBP 0.5 million lower year-on-year with reflecting lower average borrowings this year compared to last year. Non-underlying items. So this is -- these are the items that are not treated as part of the underlying results. These are one-off costs essentially, GBP 11.9 million expense in the first half. We've split it in the table between cash and noncash items. I'll take the cash ones first of all. So we've got the usual amortization of acquired intangibles, broadly flat year-on-year. There's a GBP 3.2 million noncash charge relating to goodwill impairment on the Melrose acquisition. And then after the cash items, GBP 5.8 million is part of the one-off costs of implementing the transformation plan. So we've guided to those being GBP 35 million in total. So GBP 10 million last year. This is the first half element of that GBP 35 million overall one-off cash costs. And then finally, bottom of the table there, ERP system development as this is the cost of us transitioning away from our legacy system onto the new Microsoft platform, and this project is on track. And as we previously guided, the costs in relation to this are treated as non-underlying whilst we're in the implementation phase. Cash flow, if you look about -- I'll come on to net debt. If you move down the cash flow, look about 1/3 of the way down, underlying operating cash flow, GBP 18.7 million negative in the first half, but important to note two specific pieces in that. One is a GBP 10.8 million VAT timing movement. So we collected VAT on the property sales that we made in December 2024. We collected the VAT on that in December 2024 and paid that over to HMRC in January 2025. And then we also made a -- we have conscious decision to make GBP 13.4 million investment in stock in the first half that was to support the improved revenue trajectory we saw during the first half and to bring more of our fast-moving lines into the front end of our business. So without those two specific moving pieces, which won't recur, then that operating cash flow would have been positive in the first half. And what you'll see in the second half is some or all of that stock investment actually reverse in the second half. So what we're going to do in the second half following the implementation of the centralized buying function, which Chris will talk more about in a few minutes, we would expect to be investing a bit more in some of the fast-moving lines in the second half of the year, but that will be more than offset by efficiencies in slower-moving products as we move our business more towards a 5x stock turn and higher over the next 9 to 12 months. Other than those movements I've talked about in working capital in the first half, receivables and payables are broadly just reflecting timing and seasonality, so nothing particular going on there. Just moving down to cash flow, interest and tax, GBP 2.9 million inflow that reflected refund of corporation tax payments made last year. CapEx was GBP 2.9 million outflow in the first half. The vast majority of that was Trade Counters, and that's the final piece of that investment program now. So that's ended. And then we've got the GBP 8.2 million outflow in respect to non-underlying items, which we talked about on the previous slide, and that left us with net debt at the end of the first half of GBP 24 million compared to GBP 28 million of net debt at the same time last year. Now post period end, so in July, we disposed of a property, Tamworth for GBP 21 million. And so that net debt number has come down substantially since the end of the first half. Let me just -- I'll just finish on balance sheet then before I hand back to Chris. Key points are on the right-hand side here. So I talked about net debt in the half 1, so GBP 24 million has subsequently come down significantly, GBP 72 million worth of borrowing facilities. In the orange box there, property assets, so GBP 94 million worth of property assets at the end of half 1. That was at January 2023 valuation. And the last 12 months, the average premium when we've been selling some of these properties has been 23%. So we've got well north of GBP 100 million of the property assets at the end of the half year. And then in the green box on the right-hand side, over GBP 200 million of unleveraged inventory and receivables. So strong balance sheet underpinned by that property and working capital. I'll finish there. I'll take questions at the end and I'll hand back to Chris.

Thanks, Adam. So I'm going to do a couple of slides, which is a reminder really, a reminder of our strategy and the changes that we're making to the business through the transformation plan. So I'm going to run through those. A couple of slides just to remind. So first up, we have -- so this is just a reminder of our strategy. Now this has been set out for some time as putting the customer at the heart of what we do. So this is a customer-first strategy. And Headlam has been very heavily focused for many years in the independent retailer and small contractor business. And that's where Headlam's historically had its business focus. And that forms a significant part of the market. But the strategy is we're looking at how do we preserve and protect that part of the market where we have very high share and we have a mature business model. So that's just about holding great service, great stock and doing what we do well. And the transformation element of that was just doing that in a much simpler, more efficient way. But the second part of the strategy then is looking at the right-hand side of this slide is there were customer segments who are buying flooring in the market that we've not really addressed and we've not offered a good quality customer proposition to. So second part of the strategy is about developing those other elements of the business to offer a compelling proposition to those customer types as well as preserving the great service that we offer the independents. So this is where the Trade Counters and the Larger Customer focus has come from in recent years, where we can develop a proposition alongside the independent retail one and offer great service to those markets as well to access more of the addressable foreign spend in the U.K. So yes, the transformation plan that we announced a little while ago is about using existing strategy and actually just accelerating it in tough markets. And as I said earlier, the opportunity that we have to really simplify what Headlam offers to its existing customers, in particular, the independent retail space, where typically, Headlam had offered multiple faces to the customer. In order to get the best out of Headlam, customers had to have multiple accounts and see multiple salespeople and place orders for multiple products. So it's quite a complex order process for customers, quite a complex offer, and we duplicated our efforts from a customer perspective and a network perspective in order to meet that. So the transformation plan is one of simplification. So simplification of the customer offer, simplification of our network and as a result of operating as a single business, simplifying how we do business as well. So that's the transformation plan internally. I'll now take you through those three elements in a bit more detail. And this is something that we started earlier in the year, and we outlined what we were doing. And you'll see as we progress through these three slides, the relative progression that we -- how far through this transformation plan we are in various areas. So the first one is around the customer offer. I said about putting customer first. So our strategy is one of expansion into new customer types, but a simplification of how we do that. So I mentioned that we've consolidated what was 32 wholesale businesses that we presented to the customer, and we've simplified that to a single business under Mercado. We did that in September last year, and customers have responded well to that change. So customers now can get effectively a one-stop shop for all of their wholesale needs from Headlam. So they don't need to see multiple salespeople. They don't need to access multiple websites to place orders. They can now do that in a single way and access a common portfolio of products. So a significant step change for customers. Similarly, on the brand side, so we have a number of different sales teams selling branded products into the marketplace. We've recently consolidated those, six of those into a single sales team as well so that a single salesperson now has access to multiple parts of the Headlam branded business, again, to simplify the customers' experience of ordering product and getting service from Headlam. Now, all of those customers are now transferred and transitioned into the single account approach. I've mentioned the Trade Counters, and I'll come on to those again in a moment. But this sort of order anywhere, collect anywhere concept is one of, again, putting the customer first. Many of our customers who operate across the country were requesting this and saying, look, why can't I order product for collection in another part of the country where my work happens to me? Typically, these will be contract customers who may be working on projects around the country and like to have their product proximate to where their job is rather than where they're based. So we launched this system earlier this year, which means that we can access for the first time the entire network that Headlam has at its disposal, in particular, Trade Counters, which can act as a click-and-collect type operation for customers around the country, thereby enhancing the service to customers. And those things are largely now in place and has been a progress and development we've seen since the last year. So you can see the balance of this slide, a lot has been achieved, and there are still some areas to go from a customer-first perspective. And POS is a key part of our investment phase. I mentioned this earlier that independent retailers and imagine the floor space that independent shops have, product presentation is critical to the success of this. And I think Headlam in the past has been guilty of underinvesting in this area, and it was particularly difficult when we had multiple brands and multiple businesses facing into the customer because we would duplicate the effort, duplicate the investment. And as we've been going through this process of consolidation of the offer and presenting a single face to the customer, we weren't able to roll out that POS to customers, but now we can. Now we've got a single business model to work from. We have now started to deploy new POS to the customers. And this is a GBP 4 million investment this year. We're about halfway through. And on the next slide, we actually have some images of some of the stands that are now in customer situ. So you can see here, we've got some lifestyle branded ranges that have now gone in award-winning stands and POS. Kersaint Cobb, one of our branded floors that we given to the market again, top right. So these are real images from customer premises. And customers who have been getting this new equipment love it, the simplicity of it, it's modular. It looks fresh and new. And it's critical that we invest in this type of product and POS to engage the independent retailer. So that we've got more of that to come, and that's a key part of preserving our position in that marketplace. So if we just move on to the next page. So this is the network and simplification of the network. Now this we started a little while ago before the consolidation of the business. So prior to the consolidation of the business into a single business model, we were able to start looking at a national network, logistics network and start to move to more of a postcode-driven delivery network. And that did generate some quite significant savings moving to one delivery network. But we're now able to take the next phase. So we have completed some of the optimization, and we've been able to exit some of our sites and ultimately sell some of those sites either already in the first half of last year, and there's still property available for sale at the moment. We've completed the Trade Counter rollout program, we end up around about 80 or just over sites across the nation. And it now means that we can, as a single business, start to look at the next phase of optimizing the networks. And now we are effectively acting as one, what does an efficient modern network look like at the sort of scale and the volume that we see today. So Headlam was built and developed at a time when the volume is significantly higher than it is today. And therefore, the task is not only one of consolidation and simplification, but one of just becoming more effective and efficient. And there are a number of steps here, a number of items that we've pulled out to give granularity about what we mean. So a good example, when you've got fast-moving items that we have, and Adam has talked about investing in stock. There are some five fast-moving stock items that should be everyday sales in good stock depth in every location. We've invested in those, and we put that stock close to where the customer is. On the contrast, there are other products that are sold less frequently, they might be slower moving. So instead of holding those at every site, which we would have done in the past, we can now centralize those and lean on those in the center, so we can still service customers, but they'll be held in fewer locations. So that gives us the ability to move product into more effective and efficient distribution. It means that we can reduce trunking so that we can have fast-moving items close to where the customer needs it. And we can just trump the items that we need to because it makes sense to from a slow-moving perspective. So there's a number of things now which become possible because we've got the single business model. And many of these items now will move into more of an optimization phase rather than, for example, Trade Counters. Then the third aspect of the transformation plan is really one of what do you do? How can you access an improved financial position through acting as a single business? Now clearly, we now need less overhead because we've simplified the business model. We've consolidated the finance team already because we're now a single business rather than multiple businesses that required multiple P&Ls, if you like, to run. And now it means that we can create a single version of what Headlam's product was. We've moved from a significant duplication of SKUs and ranges into now a sort of standard Headlam range. That gives us the ability to have fewer, more better quality relationships with suppliers where we can buy in depth, we can buy in volume, we can act as a single business for the first time. Prior to this, we were buying for individual businesses. Now we're buying as one. It gives us the ability to be more effective, more efficient, working true partnership with the suppliers so that they gain from simplicity and ease of contact points with us, and we can take advantage of better buying benefits as a result. So we've created a central buying function relatively recently. And the task ahead of us now is to start to use that as a single business. This is the area that Alvarez & Marsal have helped us, in particular, and we've asked them to make some recommendations of how we can move quickly in this area using their experience and indeed on the network. So these areas are less mature in their development. You can see from the balance of the slide that there is less completed and more in progress. And that's the clue as to why we've got more potential in this area. So this is working in partnership with our suppliers to try and drive margin up for us and to make us a simpler business for them to trade with. So what does all that mean? So when you put all those things together, it means that we can expand the appetite for the benefits coming out of the change plan and the transformation plan now we've increased our guidance to GBP 35 million once it's mature. Cash benefits also significantly increased, and Adam has described the process we're going through to extract that, whether it's through stock or the disposal of surplus assets and properties. So again, we've upgraded our guidance in this area, and that's net of the reinvestments we're making in the business. So last couple of slides before we close the presentation. Just in terms of sort of outlook and summarizing where we are, as we said, the market has remained weak. And just when you think that it's about to perhaps tip into some growth, then we have a bit of a bumpy summer, as I described, it's been a bit weaker in the last few months. Based on those indicators that Adam referred to earlier, there has been a bit of a stalling in some of the consumer spend and the consumer confidence. And our revenues consequently has been relatively flat through the summer months, a little bit weaker in August. But what remains true is the lead indicators, the underlying drivers of volume in our marketplace, the housing transactions, the ability for consumers to spend because they've got real wage growth is there. And we've suffered this sort of 25% reduction in volumes since pre-COVID levels. So there's an element of deferred demand that we've got satisfying the marketplace as well. So I think that does point to a more positive future, but the confidence in the consumer in particular, is just holding that back. So final slide in summary then, I think the longer-term outlook, therefore, is much more positive. We've got a strategy, which is looking at addressing more of the market than we had before. There's a transformation plan, which does address those challenges that the business has faced of having duplicity and multiplicity of cost base, having a simplicity that we can execute a much simpler transaction, both with customers and suppliers, and the market improvement is going to be there. When? We don't know, but it will come back. There is an element of market recovery, I'm sure. So those items together just put Headlam in a good position for the future. So that brings us to the end of our presentation. I think we've got some time for some questions.

Chris, Adam, thank you very much for your presentation this afternoon. [Operator Instructions] As you can see, we have received a number of questions throughout today's presentation. I please ask you to read out the questions and give responses where appropriate to do so, and I'll pick up from you at the end.

Yes. There's a couple actually that were pre-submitted before the presentation. And I think although the presentation perhaps answers some of them, it might be worth me just sharing those. So the question really is looking around how confident are we that we can return to profitability, what do we need to do to create a sustainable business model? And I think we've gone some way to answer that, but let me put a little bit of flavor on that. And the question also talks to the Board members as being shareholders as well. So I think we are aligned with that. Certainly, myself and the rest of the Board have been buying shares since the last time we reported. So yes, of course, we're personally invested and on behalf of shareholders. We need to create and want to create a sustainable business. That's why the transformation plan is so important that we move with pace, we move with ambition, and we create a simple, sustainable business for the future. And the path that we've set out does get us there. So it does show that we can return to a profitable business model by following the steps that we've laid out, and that's the guidance that we've given and you may well have seen. So we've increased the ambition and the scale of the benefit as we've announced this time around. And we know that, that will, therefore, bring us back into a profitable situation going forward. So that's the target for us. We've condensed that period because we realize that an extended period of losses is not a sustainable business. So we've shortened the period to get back into profit and cash generation, and that is the goal of the Board. There's another couple of questions here that have been raised. So Phil, for example, has raised a question around the segmentation of our results and how we're performing in Trade Counters and Larger Customers and things. And I think if I just address all of those, there are two or three questions there that sort of reference the same topic. What we've seen is, as we've moved through this customer offer, we've seen quite a blurring of our channel lines really. So I think Trade Counters, as an example, is there to address and provide service enhancement to customers as well as a fulfillment channel for others. So it blurs the lines between a stand-alone sales channel and a fulfillment convenience for other customers. And we've seen that across the board really. And we are able to track performance of individual Trade Counters and as a cohort. So we're able to see how they're performing in line with their expectations. But from a kind of an external perspective, in many cases, the customers that we're servicing, we are actually seeing growth with those customers because of the convenience of Trade Counter. But from an external perspective, they're the same customers. So it's blurring these lines, hence, the decision to kind of merge them back together. But we are able to track the performance as a cohort of businesses. And what we've seen there is that the target, broadly speaking, let's say, it's GBP 2 million of Trade Counter broadly is that kind of target that we've shared with the market previously. It doesn't come in a linear way. Clearly, when you open a Trade Counter, you start with 0 sales, and it takes time to build that scale up. And that sort of S-curve, if you like, of market performance, of individual revenue performance per site, we are seeing being followed despite the tough market. So I think there is a -- when you open a new site, clearly, to premarketing, you get new customers, you get some existing customers coming to trade with you. So we have seen the performance of Trade Counters broadly in line with what we thought we'd see. So that's the sort of good news. As I said, there's been more of a blurring of the lines than we perhaps expected between the way that the customers interact with us and new customers are attracted to us. But broadly speaking, the sales of the Trade Counters are performing in line. Now the good news about that is that when you -- now we finished the initial rollout and we finished that phase of development. The future sales that are still to come through on that S-curve for maturity will drop through at a higher rate of profit than when you deploy the new ones because as you deploy the new ones, clearly, they have a low level of gross margin relative to their cost and hence, it becomes a drain on the P&L, as Adam has described. But now we're through that phase, the revenue that we gather should come through at a higher drop-through profitability. I think on Larger Customers has been a bit of a mixed bag there where some of our customers have withdrawn from the market, Homebase being one of them, SCS being another have changed the direction. So we've seen some headwinds in the larger customers. But despite that, we've seen some growth, and that's because some of our partners have seen some success like Tapi is a good example of a customer that we service has done well. And we've been offering services to new customers. So I think Larger Customers have done reasonably well with us, but it's a mixed bag because of people withdrawing from the market. And I think there are parts of that market that are still ahead of us. So some of the house builders and the larger contractors, for example, is still an area of development that we're looking to get into. So I hope that sort of answers those questions around how the individual channels are performing. But I think the relevance for pulling them out separately is perhaps not so much there, but we are something that we look at certainly internally. There's another question here from James, which is around the kind of prolonged weakness in the marketplace. And how do we rightsize the business model so that we can create that sort of sustainable profitability. I think that goes to the heart of my first sort of question that I raised around the pre-submitted ones, which is that is very much at the heart of what we're trying to do is to create a sustainable business. I know and we know that the business that was there before had too high a cost base to service the market. So not only are we simplifying the business model and the proposition to customers, but we're reducing our cost to serve as well, reducing that breakeven point. Now I know that we need to have growth as well, hence, the focus on rolling out Trade Counters and Larger Customers as well as preserving the investment in the independent retail space. So this isn't just about kind of cutting costs to get back to breakeven, we also need to stimulate demand as well. But we certainly need to address the footprint and the overlap of costs and become a much more efficient business. And that's at the heart of the transformation plan. So Adam, any you want to pick out from here?

Yes. There's a few related questions on property disposals. So let me just summarize the questions, and then I'll cover the answers for those. So the questions we've got are around what value of property disposals would we expect going forward? Which kind of acquirers could buy these properties and what will they use them for? Given the current uncertain macroeconomic conditions, is there potentially less appetite for potential buyers? And what has held back disposals so far, if anything? So let me take those in order then. So what capital can we realize from these property disposals going forward? Now the -- in reality, it's not a fixed answer, because we've got optionality here. So we have a network where we had about -- well, a year ago, we had 1.5 million square foot of warehousing space overlapping. So we knew the legacy formation and structure of Headlam meant that, that was overlapping. We got warehouses near to each other too much and that's suitable when you had the market volumes were where they were 10 years ago, perhaps but not with the size of market that is now, and it was duplicative. So the strategy is to reduce that. We're down from 1.5 million to 1.3 million square foot now. There will be opportunities to take that down further. The key point here, though, is it's -- there's optionality based on what the market does. And I've seen a few of the other questions here, which is around what if there's a bit of a depressionary environment and the U.K. economy declines and the flooring market declines further for another couple of years. Well, then we can trim the network back further if that were to happen. And the fact that we own a large proportion of the sites that we operate from gives us the optionalities to do that. So I know I'm not quite answering the question, but the reason for that is it could flex according to what size does the network need to be to adapt to the market. But there's clear line of sight for us of double-digit millions of property disposals going forward regardless, and that could flex upwards if the market was worse than we expected. We've got one property disposal live at the moment. So we vacated the Nottingham site and that is in the latter stages of a sale process. And there's another one that we're potentially looking at as a disposal. And then thereafter, it will depend on market conditions, size of the market, what size is the right size of the network. If I just move on to the questions around who buys these, is there a risk that there's less interest now because of the macroeconomic circumstances. So these are all quite generic sheds, big sheds in good locations with good road networks. The appetite has been really strong actually when we've sold these, when we've been through any sale process, we've ended up having interested buyers in the double digits. We've done a first round, a second round, sometimes the third round. There's been that much interest has actually been quite hard managing the amount of people wanting to come around and do surveys on the site actually. So confident there's strong interest. They're very good locations, generic sheds, generic format, can be used very adaptable for all sorts of purposes. So -- and we've not seen any lessening in appetite over the last 12 months. So the most recent one we did in July, for example, I think that had the most interest that we'd had in anything that we've sold over the last 12 months. There was a question around what has held back disposals. And the reality is there hasn't. I've described we've had multiple buyers, lots of interested parties. They're generic. They're not particular -- they're not in strange locations or formats. They're generic sheds in good locations with good road networks. So I'm not anticipating any particular issues on that front going forward.

If I -- just while Adam is scrolling through some of the questions, I'll just pick up a question raised by Richard and another one by Domenico, which talks around, I suppose just going back to the segmentation of our customers that I mentioned earlier. So this talks about market share and whether we're favoring one segment over another. So look, I think it's important to note that the question asked, do we have a renewed focus on big contractors instead of independent retailers because other people have success in independent retail. Just for clarity, we haven't lessened our focus on independent retailers. I think sometimes I talk and we've talked about trying to expand our offering to other customer segments, and that can be misinterpreted as we're actually focusing on different parts of the market. And that isn't true. What we're trying to do is look to offer that great service in stock and simplify the way that we go about offering service to independent retailers. That remains the largest part of our business and is a key part of our strategy. What we're trying to do is develop additional service lines, additional customer propositions to those elements of the market that we have low share in. And that leads me on to Richard's question, which is one of share. Now historically, Headlam was very much focused on that independent retail space. And although that remains the case, I think the business is left with a relatively high share of the independent retail customers and consequently, a relatively low share of things like the small contractors and the larger customers. So if you roll that forward and going back to Domenico's question, what that means is that when our competitors, someone like Likewise has acquired around about GBP 100 million of sales and is trading as a competitor of ours as are many in that space, it's a competitive area. Independent retail is the key marketplace that many of our distribution competitors target. Clearly, when you open in a new space and you develop a proposition against the market leader, there is a market share challenge there. Similarly, when we've opened up and deployed space in Trade Counters and we put additional footprint down, we are seeing double-digit growth in Trade Counters as well, and that's taking share from other parts of the market. So I think it is quite fluid where we have a low share, we've been able to deploy resource, and gain share where we have high share and it's a competitive space. I think there has been downward pressure on market share. It's not because we've lost focus on it, it's just because it's a competitive environment. But it's important to us that we preserve our share in there. And we've now started to make investments as a single business with offering a single simple approach to customers, one place to go for your product, and we've been deploying more stands into that marketplace. So hopefully, that explains perhaps a misconception around where our focus is, but we're now able to invest as a single business back into all areas again.

There's a question here on the sale of the European businesses. I think there's a couple here. One is what price we're selling those businesses at. Now the important thing to note on here is it is the live process. There's multiple potential buyers in process. So obviously, right now, we can't comment on that. It's quite sensitive to the negotiation process. But subject to an appropriate valuation, we'd expect to complete that in the coming months.

There's a number of questions here from Christian, which talks about kind of a look forward really on market volumes, how long it might take to recover back to profitability and things, and where the recovery program is coming from. Now although we're obviously not going to comment specifically on any forecast or give any guidance, we have talked in broad terms to the scale of the recovery, and we've given some guidance of GBP 35 million and broadly where that might come from and how long that might take. So brokers have taken a view over that, and then there's a consensus that exists for us that looks to get back towards breakeven at the end of '26 into '27. So that's the sort of time frame that consensus has us on. And I think it's important to note that, as I said earlier, the key thing for us and the Board is to create a sustainable business model as quickly as possible and not necessarily dependent on market recovery. Because although we think that market improvement will come, there is a degree of uncertainty about when that might happen, particularly around consumer confidence. So it's important that we can take self-help measures, if you like, and be in control of our destiny to create a business model that gives us that sustainable profit. So that's the focus. And that's why the transformation plan is so important because it gets us back into profitability relatively quickly. And it comes from a mix of places. It isn't all about cost cutting, it's about rightsizing, it's about optimization, it's about smart trading, it's working with suppliers to buy better. Let's just buy in bulk, let's act as a single buyer rather than a fragmented buyer. Clearly, you have an opportunity then to improve margins as a result. So this isn't just about cutting costs, it's about being more efficient and more effective and smarter about how we do things as well. So it's across a number of the lines of the P&L including, in fact, interest costs and the way that we use our cash as well. So it's across a number of items, but it's important that we can be in control of that.

Question on pensions. We don't get many pension questions, so it's always great to see one of these from time to time. But the question is, could you speak to the pension deficit, specifically assets and liabilities and likely prospective drivers going forward? So last year, we did a pension buy-in, which is the first step towards an eventual pension buyout. So at the buyout stage, it's -- the pension liability is gone, it's eradicated in the balance sheet. What we did last year with the buy-in then is essentially what that does is freezes in time your assets and your liabilities in the pension scheme. So with those that's now been done, so what we did is we sold our assets to an insurance firm, Aviva. They then put in -- they then give us an insurance policy, which pays all of the liabilities going forward. So the assets and liabilities are essentially frozen in time. They won't flap around based on movements in pension assumptions, et cetera. That liability was GBP 2.1 million at the end, GBP 2.1 million at the end of 2024, it's now GBP 1.8 million. So as we just settle down those remaining liabilities that are frozen in time, that would just eventually dwindle to 0, and we'll do a full buyout probably in the next 18 months or so. But the key point here is the volatility is gone. There is no risk that, that GBP 1.8 million becomes GBP 5 million or GBP 10 million or whatever. It's just a case now of settling down the final bits on that buy-in to get to the buyout.

There are a number of questions here. If I pick up sort of Michael and David, they talk about speed of action and rightsizing the business. So there's a couple of questions here. Forgive me if I won't read all the lines out. But speed of action is important. And I mentioned bringing on board some third-party support to help us accelerate. They add firepower muscle, depth of experience, and they've enabled us to move at more pace with some analytics to help us get after some of the prices. So I think pace is important, and that's the part of the question. Now some of these things by design, take time. And I think where operationally rightsizing the footprint when you've got a number of assets as we do across the country with a distribution center, quite often, they might be -- we might need to have two or three sites that become a single larger site, they need to be effective. So clearly, it takes time to work your way through that. Other areas where we are able to consolidate service to create a single site that might become surplus, typically a bit quicker to do. But it does take time to plan that operational footprint realignment. Similarly, when you consolidate a number of businesses into a single entity, it's important that we do that with a minimum risk as possible. So we go through a process of planning, mitigating risk and taking out time to do that effectively. So there is pressure. We feel the pressure to do it quickly, but we're trying to do it safely with a sustainable outcome. So I think that's at the heart of what we do. But certainly, the key question is we're getting some help to get us there. We know and understand the scale and need to make that as quick as possible. And clearly, the route here is to create a sustainable cash-generative business that then has longevity. So right here right now, we don't have that model in place. So the transformation -- delivery of that transformation plan is critical to that success, which is why it's pleasing to be able to report an increase in the scale of that benefit. There's another question here about, from David, on the new house building. And that's an interesting question. And we do some work around the market scaling and the size of the opportunity for housing. So let's say there's 30 million dwellings in existence across the U.K. And the housebuilding program, whether its GBP 1 million, GBP 2 million, GBP 3 million, whatever it's going to be, it's a relatively small element of the marketplace. But what it does do is it creates stimulation for housing transactions. And therefore, the two things that we look at. One, we can participate in the housebuilding process itself, and that's a key part of our strategy is to look at how do we become a partner to housebuilders because typically, housebuilders will buy from manufacturers. But actually, we can multiproduct that with housebuilders to offer a kind of joined-up service model. So that's one element. But I think the second thing, and that's why we report on it from a data perspective, is housing transactions themselves tend to stimulate demand. So if house builds lead to further transactions, we can participate through an RMI refresh of both dwellings. So that's where I think the bigger benefit comes from us is in servicing the existing housing estate and look at offering RMI services in there. So I think it's got a twin benefit for us. And anything that stimulates the housing market typically will be good for us. There are a number of questions here around use of capital and return of capital. And Adam and myself talked about this a little while ago, and I think it's worth probably just refreshing the memories on this. So I think once we've got that confidence around that sort of we've created that long-term sustainable cash and profit generation, it comes back to our capital allocation policy. And again, we talked about that in the past. So buybacks, return to shareholders in some sort of dividend is clearly a feature of a cash-generative business that is something that then becomes profitable. Right here right now, that isn't something that we're participating in, and as you might imagine. But certainly, that's back on the agenda once we generate that sort of sustainable cash position. And that's certainly a feature of what we've seen before. Right here, again, buybacks become an attractive proposition given the share price. Matthias has asked a question. I think, Matthias, we might be seeing you in a couple of days, but this is around what are we doing to regain market share you've lost during the last few years. Again, I think the market share question I sort of outlined earlier is one of -- I think as a whole, market share is broadly flat for Headlam. What we have seen is we're taking share in certain areas of the market. I talked about the growth in Larger Customers and Trade Counters. And I think we've been losing a bit of share in the independent retail space. So the area for us to address in terms of market share is that independent retail space. So it's doing the basics well. So yes, we have competitors that are new, that are existing and they offer stock, they offer service, they offer proximity. And some of those customers -- competitors who have been deploying new space, clearly, they offer a new competition in that environment. So we just need to have the right stock. We have to offer the right service and we need to invest in that customer segment. And as I mentioned earlier, that is an area that we haven't necessarily invested in recent times because of the fragmentation of our branding and the need to pull it together into a single business offer. So now that that's in place, we're able to invest in new POS. And we've committed GBP 4 million this year in that rollout. And as I said on the slide, customers are pleased with what they're getting. They love the stands and they've requested more. Okay. I think we are just about out of time. Any more questions, Adam, that's on your list? I think we're running out of time here.

Yes, a quick look through. There's a question about profitability of Larger Customers business.

Yes. I think the segmentation, as I said earlier, we have different parts of the business with different levels of gross margin. We've talked about this in the past. Typically, larger customers may well have a slightly lower gross margin, but they have bulk service arrangements or we might deliver to a large DIY store, for example, and we do that in volume. So the marginal cost to serve is relatively low. And in those cases, the operating margins are broadly consistent with the independent retail margins. But there's a scale play, of course. So if we're able to drive more scale through the share that an independent retailer brings, that typically has a higher drop-through. So larger customers give you good scale. They give you solid margins, but it's less incrementally beneficial because of the leverage, the operational leverage you get with other segments. So that's just a feature of that part of the market. Okay. I think we're just about out of time. So I think we've done all the questions we can for now.

Chris, Adam, thank you for taking the time to answer those questions you have from investors. And of course, the company can review all questions submitted today, and we'll publish those responses on the Investor Meet Company platform. Just before redirecting investors to provide you with their feedback, which is particularly important to yourself and the company, Chris, could I please just ask you for a few closing comments?

Yes. So look, thanks for taking the time to join the presentation today and to ask some good questions. We're not able to answer them all, unfortunately, but we try to do our best to answer most of them. But it is a tough place, a tough market. We've had some ups and downs. It's pleasing to see a flattening in the market demand in recent times. And it's great to be able to report bigger benefits coming out of our transformation, but we have to do that. I know that we have to deliver that transformation and get the business back into a profitable and cash-generative shape. So that remains ahead of us. We've got a plan that does that, doesn't rely on big market recovery to do it. But I think the longer-term outlook, I'll come back to that final slide, that we deliver the strategy, we deliver on implementation plan and the market will recover and it gives us a really positive outlook for the future. So again, thanks for joining the call and all of your questions.

Chris, Adam, thank you for updating investors today. Can I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations? This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team of Headlam Group plc, we'd like to thank you for attending today's presentation, and good afternoon to you.